Why RBI Is Reviving the FCNR(B) Swap Scheme to Attract Foreign Inflows

Amid pressure on the rupee, the Reserve Bank of India is considering reviving a tool it last used effectively in 2013: a special swap facility for Foreign Currency Non-Resident (Bank) deposits, known as FCNR(B) deposits. These are fixed-term deposits that Non-Resident Indians, Persons of Indian Origin and Overseas Citizens of India can hold in foreign currency, without having to convert their money into rupees.

The idea works like this: the RBI offers banks a subsidy on the foreign currency they raise through these deposits and takes on part of the exchange-rate risk. This lets banks offer attractive interest rates to depositors abroad, encouraging a large inflow of foreign currency that strengthens the rupee and rebuilds confidence.

When the scheme was used in 2013 — during the 'taper tantrum', when expectations of US Federal Reserve tightening shook emerging-market currencies — it brought in about $26 billion and helped stabilise the rupee. Notably, the move was controversial even then: it shifts currency risk onto the central bank, which is why some economists have always viewed it sceptically.

For exam purposes, the key takeaways are the definitions of FCNR(B), NRI/PIO/OCI deposit categories, and the concept of a currency swap as a tool the RBI can use to manage external-sector stress.